Yesterday I listened over the web to two CEOs of for-profit education companies make presentations at an investor conference in Scottsdale, Arizona. Neither man had anything to say about the overwhelming evidence that for-profit schools have engaged in waste, fraud, and abuse with federal tax dollars. Instead, both touted their companies, and one announced a startling change of course that could be aimed at complying with new federal rules, but might in fact be a route to completely evading them.

Bridgepoint Education’s CEO, Andrew Clark, spent most of the time bragging about software that the company has developed for students at schools owned by Bridgepoint, including Ashford University and University of the Rockies. He also touted Bridgeport’s growth in enrollment, saying that everyone would want to know, “Why has Bridgeport been doing so well in what has been a difficult time for the sector? “

What is Andrew Clark talking about?

Almost exactly a year ago, I attended a hearing chaired by Senator Tom Harkin (D-IA) that focused on Bridgepoint, which in 2005 used funding from private equity firm Warburg Pincus to buy a small Iowa religious college and transformed it into a huge, mostly online for-profit education company with 86,642 students and $933 million in revenues by 2011. The point of the hearing was that Bridgepoint was a particularly egregious poster child for a sector that thrives by abusing students and federal taxpayers alike.

Here is some of what the New York Times reported about the Senate hearing:

Using data from federal filings and documents provided by Bridgepoint, Senator Harkin … described an institution that gets 86 percent of its revenues directly from the federal government, but sees the vast majority of its students drop out, burdened with student-loan debt. Of the students who enrolled in 2008-9, for example, 84 percent in the associate degree programs were gone by September 2010 (63 percent had left the bachelor’s programs).

Bridgepoint employs 1,703 recruiters, the senator said, but only one employee is charged with job placement.

The amount spent on instruction per student was above $5,000 before Bridgepoint, but has since dropped to about $700 a student — about a tenth as much as at Iowa State. According to Mr. Harkin, for each Bridgepoint student, $2,700 went to recruiting and $1,500 to profits. Its chief executive, Andrew Clark, earned $20.5 million in 2009.

“From a strictly money-making perspective, this is a highly successful model,” Mr. Harkin said. “But from an educational perspective, from the perspective of public money and an ethical perspective, I think it’s a highly disturbing model.”

Mr. Clark declined Mr. Harkin’s invitation to appear at the committee hearing, and Marianne Perez, a spokeswoman for Bridgepoint, declined to comment. But on Thursday, the company posted a Web site presenting its views on the issues raised at the hearing.

Regarding the ratio of recruiters to career services staff, for example, the Web site said, “Because 74 percent of Ashford University students and graduates are already employed, traditional placement services are not necessary.” And as to the high dropout rates, the Web site explains that they include students who may have attended only the first night or week of class….

Mr. Harkin introduced into evidence hundreds of complaints from Bridgepoint students, many saying they were deceived by the company’s recruiters, or found out after leaving that they owed the college more money.

More than 20 state attorneys general are pursuing a joint investigation of alleged fraud and other misconduct in the for-profit college industry; at least three — Iowa, New York, and North Carolina — are specifically investigating Bridgepoint. The only reference CEO Clark made yesterday that even remotely addressed the controversy surrounding his company and industry was a flat assurance that Bridgepoint’s programs would comply with “gainful employment.” He was referring to a rule issued last year by the Obama Administration, which was heavily watered down after intense lobbying by the for-profits, but still would, in a few years, eliminate federal aid to programs that leave an overwhelming number of their students deep in debt.

Clark did not get any questions from the attendees at this presentation, which I can only surmise was held in another universe.

Kevin Modany, CEO of ITT Educational Services, Inc., also made a presentation at the conference. He appeared to announce, and it was confirmed by subsequent discussions at the conference, that ITT plans to revamp – essentially to replace – many of its programs. This could be a positive development if the company is genuinely looking at improving the programs to make them more valuable to students. But the action could have the effect of erasing the track records of existing programs and avoiding violations and penalties under the gainful employment rule, because the rule applies to programs, not schools. Programs must have terrible student debt records for three years in a row to lose federal aid, but a school that replaces its programs might be able to claim a clean slate.

So what does ITT intend? Its past conduct provokes skepticism. ITT gained notoriety when Senator Harkin, in a floor statement last year, quoted from a memo written by an ITT campus director of recruiting: “The department needs to focus on selling the appointment by digging in and getting to the pain of each and every prospective student.” The ITT recruiter training included an illustration of a “pain funnel.” Thirty percent of ITT students default on their loans within three years of leaving school. I spent an intense day of lobbying on Capitol Hill last year with one former ITT student and one former ITT staff member, each of whom gave astonishing accounts of misconduct at this school.

UPDATE for folks who want to get into the weeds on this: Note that the possibilities for gaming the system and avoiding gainful employment penalties by replacing old programs with new ones are still being litigated. See Department of Education regulations; Department of Education notice of proposed rulemaking; comment from civil rights, student, educator, and consumer groups.

If Goldman Sachs is a ‘giant vampire squid’, thrusting it’s blood sucking funnel into all of us, this industry is a close relative. Clarify and simlify the rules: high drop out or default rates from any program? No federally guaranteed student loan money for the entire school, period; five years of meeting all targets required before you may apply to be readmitted to the program. Have more recruiters than job placement advisors? No federal money for you. Spend less on teaching students than the average in your state? No money for you. Profit margins and CEO salaries out of line with industry averages? No money for you. If we enacted these simple rules, this ‘industry’ would go away overnight; empty the trough, and the pigs go elsewhere. No offense intended towards pigs.

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